MARKET COMMENTARY

The Dow plummeted more than 500 points on Monday. Basically, the financial markets had been battered so badly that virtually everyone stayed away from financial stocks. The announcement of Lehman’s filing for Chapter 11 bankruptcy protection caused havoc in international financial markets. Across Asia and Europe, stock markets lost between 5-7% in one day in response to the US crash. It appears that the current dismay financial situation could continue to worsen as AIG is probably next in line to fall prey to the financial meltdown.

It is a rare sight to see the Dow chart displaying such a long red bar with a towering volume. If this does not indicate a sign of extreme fear in the market, I don’t know what is. Two support lines were breached in one day, making its lowest level since the Dow peaked in October 2007. In addition, the RSI 40% also broke, affirming that the Dow had returned to the bearish trend from one that was sideways.

Tuesday’s market may pick up the momentum started on Monday. However, it is possible for some short-selling covers to halt the decline. It is also possible for the market to rebound in the morning and retreat again in the afternoon. This has been the common trading pattern for the past two weeks. Do remember that for every big sell-off or surge, there can be a “hangover’ effect - a market phenomenon that is staid and Doji or spinning top is common candlestick pattern.

Options traders: Sell your Bear Calls!

DJIA Daily Chart

Russell broke its support and its chart finally turned bearish again. If you are holding any open position, you may want to hold on a while longer until its Stochastics hit oversold zone.

RUT Daily Chart

The Nasdaq fell just as severe as other indexes. There is no big surprise to this chart because it has started its plunge quite some time ago. Therefore, there was no big increase in volume compared to other indexes.

Again, the SPX chart is use this time. The long red bar is really appetizing for me. Yes, I am short on this index. I expect more bearish move from here, though a rebound is possible for Tuesday.

SPX Daily Chart

STOCKS TO WATCH:

NIL

Subscribe to the post comments feeds or Leave a trackback